Ahead of the Bell: IBM's 3Q peeks at tech services

Tuesday, 16 Oct 2012 | 6:23 AM ETThe Associated Press

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ARMONK, N.Y. -- IBM Corp.'s third-quarter earnings will provide a glimpse at how well the technology services and business software markets have been holding up amid uncertainty about the global economy and the U.S. presidential election.

The results, due out Tuesday after the stock market closes, won't be as straightforward as usual. That's because IBM is absorbing a charge of $160 million to account for a United Kingdom court decision that will increase the company's costs for paying pension benefits to some of its former employees in that country. IBM also recently completed the sale of a retail sales system that will result in a substantial one-time gain.

Investors, though, generally discount one-time setbacks like the retirement charge, so the stock market's reaction to the numbers will likely be driven by what IBM's earnings would have been without items unrelated to the company's ongoing business.

After stripping out IBM's costs for past acquisitions and changes to employee retirement plans, analysts expect earnings of $3.62 per share on revenue of $25.4 billion, according to a survey by FactSet.

If IBM hits the analysts' target, it will mark the 39th consecutive quarter in which the company's earnings have increased from the year before.

Revenue, though, will be down by about $750 million, or 3 percent, from the same time last year, if the analyst forecast is right. It wouldn't be a shock if revenue slides even more than analysts anticipate because of how much stronger the U.S. dollar is than last year, largely because of jitters caused by unwieldy government debts in Europe. The weakening euro means sales made in that currency converted into fewer dollars than a year ago.

Analysts underestimated how much IBM's revenue would be undercut by currency fluctuations in the second quarter.

IBM is considered to be better insulated against short-term swings in the economy because it locks many of its customers into consulting contracts that guarantee regular payments even in tough times. The company, which is based in Armonk, N.Y., also benefits from specializing in technology services and business software _ two areas that generate higher profit margins than selling computer equipment.

IBM closed Monday at $208.93, not far from its recent 52-week high of $211.79.